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A construction loan for a condo development is project-level commercial debt: the lender approves a development budget and advances money in stages as construction proceeds. Before funding starts, the developer may need to meet lender conditions such as contributing equity or securing presales. During construction, draw requests are checked against completed work and eligible costs; repayment is then handled under the project’s negotiated exit plan, such as unit sales or refinancing. The exact requirements depend on the lender, loan documents and jurisdiction—there is no universal presale threshold, holdback, interest rate or leverage ratio.
What a condo development construction loan finances
A lender makes a project-level facility to a developer or development borrower to finance an approved condo project through a defined construction period. The facility is based on the lender’s review of the site, development plan, costs, sponsor capacity, market and sales assumptions, and intended repayment. It is not the same as a mortgage issued to a person buying one finished condo.
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The loan is generally not an unrestricted lump sum handed over at closing. Instead, money is advanced over time against eligible project costs, subject to the facility’s conditions. The developer may need to contribute equity before debt is advanced, alongside advances, or at another point set out in the documents. How much equity is required and when it must be contributed are deal-specific; the sources available here do not establish a standard loan-to-cost ratio.
Before signing, the borrower should understand the approved budget and the construction period, but also the conditions that govern access to the money. A loan commitment is not necessarily the same as having every draw condition satisfied. Presales, approvals, equity contributions, reporting and other requirements may affect when funds become available.
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How construction draws are requested and released
Commercial construction funding commonly follows a progress-payment process. The Office of the Comptroller of the Currency (OCC), in its Commercial Real Estate Lending, Comptroller’s Handbook, describes a request as a construction draw request or certification of payment that sets out the requested funding by construction phase and cost category. In practice, the lender checks both the request and the work or costs it represents before releasing eligible funds.
- Confirm the draw conditions. The borrower checks the loan documents for the permitted draw schedule, eligible cost categories, required certifications, evidence and timing. The agreement—not a general industry convention—controls what the lender will accept.
- Submit the progress claim. The developer or contractor provides the draw request and supporting cost detail. Depending on the documents, this may include certifications, evidence of progress and supplier or subcontractor lien waivers.
- The lender verifies the request. The lender independently confirms construction progress and reviews whether the requested amount is supported and eligible. This control helps avoid funding unfinished work or paying a cost twice.
- Eligible funds are advanced, subject to any holdback. The lender releases the approved amount under the facility’s terms. A holdback may reduce the cash paid on a given draw until specified release conditions are met.
- Close out the work and final funding. Before the final advance and holdback release, the OCC advises checking final inspection evidence, lien releases and a certificate of occupancy. The borrower should confirm the exact closeout documents and release tests in its loan agreement.
The OCC handbook describes a holdback of 10% to 20% of each progress payment as normal commercial practice, intended to protect against cost overruns or unpaid supplier and subcontractor bills. That is the handbook’s description, not a mandatory range for every loan. The actual percentage, how it is calculated and what must happen before it is released are set by the project’s documents.
Draw controls can affect the project’s cash flow as well as its paperwork. A developer should plan for the interval between paying a contractor or supplier and receiving a verified advance, and should know how the lender treats disputed costs, incomplete work and retained amounts. The specific timing and procedures are not uniform, so they need to be established with the lender before construction starts.
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Why lenders may require presales
Presales are signed commitments by buyers to purchase units that will be delivered later. A lender may make a minimum amount of presales a condition for construction funding because signed sales can provide evidence of demand and a potential source of repayment. The requirement can depend on the number of units under contract, the strength of those contracts, buyer characteristics, treatment of deposits and permitted cancellation rights. There is no single threshold supported across lenders or jurisdictions.
Ask how the lender defines an acceptable presale, not just how many contracts it wants. A headline unit count may not tell you whether a contract qualifies, whether a buyer can cancel, how deposits are treated or whether a commitment must remain in force at a particular milestone. Those details belong in the lender’s written conditions.
A jurisdiction-specific example: New South Wales
New South Wales, Australia, offers a public Pre-sale Finance Guarantee intended to help eligible projects meet lender presale conditions. The NSW Government describes a process that starts with project approvals and indicative lender approval stating the presale requirement, proceeds through government assessment, and then formalizes purchase commitments. It is a program for eligible projects in New South Wales, not a U.S. financing option or a universal substitute for presales.
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The NSW Government program page describes a $1 billion revolving fund and cites a Housing Accord target of 377,000 new homes over the Accord period. The fund figure is associated with that NSW program; the housing target is the government’s cited policy target, not a measure of condo loans, presale requirements or units in any individual development.
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There are two distinct financing questions in a condo development. First, will a lender approve and fund the developer’s project-level construction facility? Later, will lenders be willing to finance individual buyers purchasing units? The review for one does not automatically answer the other.
Project characteristics—including the sales plan, budget, developer, construction status, phasing, common areas and governing documents—can affect whether buyers can obtain mortgages for individual units. Fannie Mae’s Selling Guide materials on general project standards and the Project Eligibility Review Service describe project information and review processes relevant to that unit-level mortgage channel. These rules matter to a developer because buyer financing can affect sales and the project’s planned exit, but meeting a consumer mortgage investor’s project standards does not itself secure commercial construction financing.
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Do not confuse a development loan with a buyer’s construction-to-permanent mortgage
A construction-to-permanent mortgage is a consumer loan for an individual borrower building a home; it is not a facility to build an entire condo development. Fannie Mae’s Selling Guide, in its June 4, 2025 guidance on conversion of construction-to-permanent financing, says attached units in a condo project and all co-op properties are ineligible for that Fannie Mae consumer financing. Detached condo units may be eligible subject to applicable project review. Fannie Mae’s FAQs, updated November 5, 2025, likewise say only detached condo units are eligible.
This is a specific eligibility rule for Fannie Mae’s consumer mortgage channel. It does not mean a developer cannot obtain a commercial construction loan to build an attached condo building. Developers and buyers should therefore identify which loan product and borrower they are discussing before applying a rule or requirement.
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Loan terms are negotiated and project-specific. The OCC’s draw guidance and the NSW example establish that progress verification and presale conditions can matter, but they do not establish representative current pricing or standard market terms. Compare offers using the written documents rather than assuming a customary figure applies.
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- Facility size and cost basis: Compare the total commitment with the project budget and valuation, and check which costs the lender treats as eligible.
- Equity: Identify the required contribution, its timing and how the lender treats equity already invested in the project.
- Presales: Confirm the required count or level, what makes a contract qualifying, how deposits are treated and what cancellation rights are permitted.
- Draw process: Compare draw cadence, inspection or certification requirements, eligible cost categories, evidence required and the time and process for review.
- Holdback: Confirm whether amounts are retained, how the amount is calculated and what evidence or milestones trigger release.
- Pricing and duration: Review interest, fees, the term, extension rights and the conditions for an extension or default. No representative rate, fee or term is established here.
- Recourse and guarantees: Identify whether the borrower or sponsor has recourse obligations, and whether completion, carry or other guarantees apply.
- Repayment and releases: Establish how repayment is expected to occur and whether unit-by-unit releases are permitted, including how sale proceeds or refinancing are applied.
These points should be read together. For example, a facility’s nominal size is less informative if the draw conditions, required equity or presale gate prevent the developer from accessing funds when costs fall due. Likewise, an expected unit-sale exit should be checked against the loan’s release and repayment provisions rather than treated as automatic.
How the lender is repaid
The repayment or exit plan is part of the lender’s initial assessment, but the available sources do not establish one standard repayment method for condo developments. Depending on the negotiated facility, repayment may be tied to unit sales, refinancing or another agreed source. The project’s documents determine when payments are due, how sale proceeds are applied, whether individual units can be released from the lender’s security and what happens if sales or refinancing take longer than expected.
For a developer, the practical test is whether the planned exit and the loan documents fit together. Check whether the projected timing allows the loan to be repaid within its term, whether extensions are available and on what conditions, and whether unit releases are possible on terms compatible with the sales plan. Do not assume that selling a unit automatically releases it from the lender’s security or that the sale proceeds can be used without restriction.
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